“Premium Assistance Tax Credit” and 2014 Tax Returns
This is a hot topic as more people become aware of how the health care premium assistance will affect their 2014 income tax return.
Watch the video below to learn more about how the premium assistance tax credit may affect you:
For those who purchased insurance through a state exchange or through Healthcare.gov, many received some sort of health care premium assistance, which may have ranged from less than $100 per month up to $200 or $300 or more each month in order to help them buy health insurance. (Obviously, this does not apply to the majority that get healthcare through their work. It also does not apply to those who receive medicare or medicaid.)
When you signed up for insurance, you had the option whether to receive an advanced premium assistance on a monthly basis and thus reduce your monthly payments on health insurance or to wait and receive it all at the end of the year when you file your tax return. (Some refer to this a “premium assistance tax credit.”) Obviously, most people chose to receive it ahead of time and reduce your monthly payments.
What many may not have realized is that all of this will be handled and reconciled through the year-end tax return. For most people who signed up, their income level was determined based upon their 2012 tax return and other information they provided. This was used to help determine what their 2014 AGI would be and to help determine the amount of credit that they qualified for.
However, and this is key, your actual credit is dependent upon your 2014 AGI when you file your 2014 return in early 2015. If you received an advanced premium assistance tax credit to reduce monthly insurance premiums throughout 2014, you will have to reconcile the amounts you actually received with the amounts your should have received based upon your 2014 tax return. For instance, if your income was higher than you anticipated, you will likely have to pay some of the advanced credit back. On the other hand, if your income was lower than you projected when you applied for health care on healthcare.gov, you will probably receive an additional credit and thus get a larger refund (or owe less tax).
For instance, say that you received a $200 a month healthcare credit to reduce your and your family’s premium by $200 a month for 12 months. Thus, over the course of the year you received $2400 in healthcare assistance (or credit). And say that you got a new job or promotion in which your income was higher than projected (and you did not go back in and notify the exchange and get your assistance adjusted). If due to your higher income for 2014, you really only qualify for a $150 per month premium credit which comes out to $1800 for the year, you will have to repay the difference. In this case the difference would be $600 (1800 – 2400 = 600). As stated in the paragraph above, the reverse could be true. You could end up getting more premium assistance if your income went down.
The key is that the advanced premium credit that you received on a monthly basis was an estimate. And it was based on 2012 information and other information you provided when you signed up for health insurance. The estimate is only as accurate as the information you provided to the exchange. Your actual credit will be determined when you file your 2014 return, and some may have to repay some of the credit while others may get more. Hopefully, in most cases the estimate and the actual will be pretty close.
For more information, please feel free to call to discuss how the premium assistance tax credit will affect your 2014 tax return. 254-432-5724.